and handed on for them to do the same. for one day we will spend hours on a years time our children and our children's children what it was once like in the united states when men were free. ..

>> pro harbor was in december 41 and almost immediately people start talking about what's to be done with the enemy alien population which includes german and japanese and italian foreign nationals your enemy aliens. seven japanese american population in general on the west coast were rounded up on bass and had to leave their homes if the lived in what was called though western defense on they were removed, forced to leave, and put in camps around the bar barbwire and not charged with anything in particular. westcoast non-japanese americans , most politicians and most newspapers strongly supported the removal of

japanese americans. it was a popular policy. civil rights organizations which were largely based back east did not pay much attention. in all of the major jewish newspapers on the west coast there were weeklies, and they had editorials talking about how the rights of all had to be protected and we should fight prejudice of all of its forms without ever saying the word japanese pacific league. so it was almost as if they wanted to say something but were nervous about actually doing so. so there was -- i call it an awkward silence or an uncomfortable silence around this issue that and started to investigate more. >> this weekend book tv in american history tv look behind the history and literary life of salem, ore.

>> irs commissioner this week says he does not expect the agency to finalize new rules for 501(c)4 groups before the midterm elections. last summer it was revealed the irs and appropriately singled out nonprofit groups which once took months to get approved and were taking years. the commissioner says the agency is expecting to receive about one hour thousand comments on the proposed rules. testimony on wednesday was about two hours. >> the hearing will come to of order. this is the first hearing of the year for our subcommittee. welcome to all of returning some committee members. but at the back.

a warm welcome to our submitting newest member it beauty is not here yet. he is down at the end. you look forward to having him work with us. today the subcommittee is going to hear from two panels. we're going to hear about the activities and operations of the internal revenue service. our witness for the first panel is irs commissioner. welcome to you, sir. appreciate your return to the federal service, and we thank you for taking on this responsibility which i think we would all agree is a difficult time. our second panel of witnesses, treasury inspector general for tax appropriation. mr. george is a right of a witness was subcommittee, and we appreciate his careful and costs of oversight. we have not heard in some time for ms. olson, so we are especially eager to your former. as a matter of housekeeping and

going to be following a five minute rule for the members. i don't plan on cutting in the woody off in the middle of their sentence, but if everybody can keep their questions and comments and get to that part of the program to five minutes that will give us a chance to hear from anybody and have maybe more than one round of questions. and going to recognize the members in order of seniority, those that were here when the gavel went down. for the latecomers we will recognize them based upon their arrival and will go back and forth between the parties. i think most of you know the 2014 appropriations cycle tested higher endurance. it was only asked to go after the fiscal year started and we and the government shut down of the budget committee came to an agreement on the discretionary spending. once we had that agreement

enacted we've rolled up our sleeves, went to work quickly and got a bipartisan on the bulls appropriations bill enacted thanks in no small part two of our distinguished chairman. so we hope that this year will go little more swiftly. we already have an agreement on the total discretionary spending that is in place. we can have regular water. by that i'm in no way we're supposed to work, markup our bills, subject them to amendments that the full committee in on the house floor, and the new will conference them with the senate. the administration had not submitted their budget for 2015 yet. we will have that soon. the have invited the commissioner to come back of a row in april to talk about how much money, his once and his

needs. today this is an oversight year which gets into how you spend the money if you have been appropriated. how much will come a little bit later. i would suggest that that two are very interrelated because how you spend the money impact, much money you will receive in the future. and i think that we all know that you have come to the irs in what would be described as a difficult time. some would say you inherited a pretty big mess. we have had a situation that that would say is one of the dark times in the history of the errors. at a time when the arabs was awash with money there horseplay and harassment started, lavish conferences were held, millions of dollars were wasted and silly videos were made. that was not good for anybody.

at the same time we found up with the irs was singling out individuals, groups of individuals, subjecting them to harassment, intimidation, bullying in an effort, it seemed, to a shutdown their involvement in politics. that is what you inherited. also you probably inherited an agency that was not doing a very good job of dealing with the consumer, the folks that call the irs and have questions. and so when your predecessor was sitting in the chair you're sitting in ast, do you think the heiress has betrayed the trust of the american people? and he said yes. but he said i want to try to help rebuild that trust. i am sure of one of your goals as the new guy, as the new

commissioner is to rebuild the trust that has been lost with not only in some part with this committee, the american people. that's where your about. i must tell you that some of the decisions they you have made early on are of some concern to me as you try to rebuild that trust. for instance $603 million in bonuses that were paid reversing a decision that your predecessor made to not pay and bonuses this trolls and. nine and he did not begin this will make in process. there's a rule that has been proposed that some would say puts a novel form what the problem was with the irs harassing people and trying to cover of their political moment. the result rule. people the were using the tax code to try to acquire peoples political involvement are now proposing a rule that some would

argue does the same thing and infringes upon their first amendment right. you did not start the process, but your continuing the process. one of the things that i have read from time to time. i note your and whirlwind tour to talk to the different offices one of your constant messages seems to be a we don't have enough money to do the things we need to do. one of the things that i've read about from time to time is the fact that we can't answer all the phone calls. a big and 61 percent of the phone calls are probably going to be answered. authorities say that we had more money, hire more people, and some more phone calls. in jacksonville, my own time, there was an article in the paper that said you don't have enough money to answer more than 61 percent of the calls. you found that unacceptable or intolerable war rages or

something. i must tell you that what i find unacceptable is that and $11 billion appropriation that the errors received this year that you can't find the money to answer more than half the phone calls it you can find the money to pay 602 men in dollars in bonuses. it seems to me that that might be a slap in the face to the taxpayer because their consumer services as they tried to give find out more from the era will find that is going down. no would pick the torrid tolerate as a taxpayer or as an individual. it bothers me to see that you don't have enough money to answer those phone calls, but you have the money and time and energy to pursue these rules.

i read today, i think there are nearly 100,000 comments on this rule. the xl pipeline, which is pretty controversial, then maybe 7,000. years of rule and is one of the controversial and has to be taking some time and energy and money, but you continue to pursue that or whoever started it continues to pursue it. yet there is not enough money to answer the phone. and i know that we year from time to time the argument, if you just give the irs more money that will collect more revenue. the argument is that if you give the ira's $1 you will get back for five in revenue. and if you don't give the irs money the revenues will go down the deficit will go on. it makes intuitive sense to say if you give the irs more money

they can collect more revenue. it sounds like it makes sense, but there is no empirical evidence. fact, at times just the opposite is true. 2001, 2009 the appropriations was increased and the revenue collections went down. obviously there are other factors than just how much money era scott. the up to look at inflation, population, tax policy, a lot of different factors. in fact, last year, 2013 is the best year ever. we collected almost 3 trillion. the most money ever collected at a time when this sequester was going on. so there is less money for the ira's to have. so all of that is this to and i don't necessarily believe that higher level of spending it was a higher level of service. and that is why i think we have

an oversight hearing. it's not just how much you have been and you spend it. i think how you spend it can actually improve even if you don't have as much as you might have been his everybody knows the government needs money to provide services. but everybody also knows that these are difficult times in our country. we have $17 trillion in debt. we have an annual deficit this year that will be less than a trillion, and we are all excited about it. the first time in five years. it's still probably the for the fifth largest deficit we have never had. the government needs money, but i would say today the government needs something more than that. it needs discipline to rein in spending. it needs courage to make tough decisions. these are commitments to make sure that we do everything more efficiently and effectively than

we have before. and we want to work with you to help you do that, to help you set the right priorities, out to spend the money. and so we think for being here today. they will have questions. before we do that now want to turn to my friend, the ranking member. let me say to him because it has been a whirl and time. he has been a great partner. we don't always agree on everything. as we went in the final negotiations with our senate counterparts to come to this conclusion it was a team effort. i want to thank him for that. >> thank you, mr. chairman. wanted thank you for your willingness to work with us, especially the staffs that have done a great job under a lot of pressure. let's hope that at last on nablus puts us back on the road to special order, something that

chairman rogers and i love, some thing that the newer members in the committee in congress may not have witnessed in the days when we could pass a bill of 400 votes and actually predict whether it would be 350 or 400. those days are long gone, but they may come back based upon what we saw. i would also like to love and the new internal revenue service commissioner for is first hearing before the subcommittee. thank you for your service to our nation and for undertaking this and never had a very challenging time for gas. by now most americans know that last year it was reported the virus has used inappropriate criteria to decide what 501(c)4 entities should be subject to greater scrutiny. as i said at that time, members of congress were appalled by these actions which affected liberal and conservative groups like. we all believe the irs must

enforce tax laws and of fair, even-handed manner. it did not occur year. at a hearing soon after the controversy came to light the question asked is where do we go from here. what must be done to prevent something like this from happening again? i think that the irs says mating is tied at answering of questions. gas has implemented on the recommendations suggested by the taxpayer in this area. the irs has also implemented numerous internal reforms and have brought more accountability and oversight to review decisions that are being made. perhaps most importantly the address is making an effort to further clarify what is and what is not political activity. there is no doubt in recent years a number of groups have abused their claims to the 501 tax-exempt status by primarily engaging in political and activities.

this tax advantage status is not a right but rather responsibility. to many organizations have been coming in as a way to avoid transparency and taxes. last year i suggested that the irs needed to revisit these rules to provide greater clarity to organizations as to what is considered a political and activity for purposes of making a final one designation. the rules proposed late last year by address have attempted to do just that in my opinion. i cannot say mass destructive it off the say in these proposals of but i do know that there will take any and all concerns seriously before finalizing the. over this committee cannot help the ira's and these reforms it would not adequately fund the agency. the fiscal year 2014 appropriations act gave the address 92 million more than a sequester level but the irs is

still being funded as the los level since fiscal year 2008. if we care about the fair implementation of our tax laws, then this is simply unacceptable we all know that at this level of funding every additional dollar given to the address allows them to bring in at least $6. we cannot keep asking more and more of the address of providing them with less and less. that is not a good recipe for tax compliance or for this nation. i hope this hearing will be of use to members of the subcommittee as we discuss fun

know, this targeting was not orchestrated by any political appointee or by any individual outside the address. yes, the irs has been forthcoming in helping numerous investigations by using more than 150 employees to engage in 70,000 hours of work to provide the various investigations with more than 500,000 pages of documents. these are issues the simply do not need to be rehashed at this point again. rather this hearing must look forward to this bill year 2015 appropriations process and the focus of this committee needs to be on ensuring the proper reforms are in place and that the irs has the resources to complete its mission of serving the american taxpayer and ensuring that everyone follows the law. we all know the importance in insuring that we have the funding to pay for everything

from national defence to head start. using this controversy to cut further resources from the agency will not just on the address but the american people as well. commissioner, once again love and to the subcommittee. i hope that when we meet again in april it will be under better circumstances. thank you. >> thank you. i would like to turn to the chairman of the full committee as join this for any opening statement he might have. >> thank you. >> thank-you, commissioner. i was with the committee for the first hearing of this year. this is the very first all-pro we will will be 100 to 120 committee hearings that will be conducted during the course of this season. year this is the very first one. you have the privilege and honor of sitting in the deck tank for the first time. the first one there.

before we get to the important business at hand today let me first echo the chairman's sentiments regarding the appropriations process in general terms. the omnibus bill for fiscal 14 that we all worked up to passed last month is a true product of compromise together along with the subcommittee chairs and the ranking members have made responsible choices to realign our nation's funding priorities and target precious tax dollars when they're needed the most. all the while we continue the 4-year trend well reducing discretionary spending. while the 14 on the bus is certainly a testament to this committee's longstanding

tradition and practice of bipartisanship, now is not the time to rest on our laurels. as chairman crenshaw as mentioned, i expect the committee to move forward under regular order, to draft legislation for federal spending into news to right size our federal government cannot prioritize spending on programs that demonstrating results and that is a product of thoughtful and rigorous oversight. we have much difficult work at a bus, but i'm hopeful that the process will move swiftly and smoothly given the right and a marie budget agreement. that think it is fitting that this commitment to regular order and transparency in the appropriations process is reaffirmed at today's hearing with the irs. just as the congress has a supreme responsibility in stewardship of the taxpayer

dollar, so too does the address have a special duty to apply our country's tax laws fairly and uniformly. commissioner, you have taken the helm of this agency during a tumultuous time. as i fear that in recent years there have been grave violations of the public trust which should give all americans cause for concern. and i hope that you're the right person to write to share. in particular, as i wrote to you earlier this month, i have serious concerns about the proposed regulation published by a predecessor in november. this rule would continue to target the first amendment rights of the same conservative grassroots organizations that were unfairly scrutinized in applying for tax-exempt status in the run-up to that 2010-2012 elections. given the agency's recent track

record of improper pull the -- intimation, i strongly believe this is a step in the wrong direction for an agency struggling to regain the public faith and confidence. i look forward to hearing about your intentions in this respect today and particularly your plans to cooperate with the congress to ensure these dark days in the ira's history books are truly beyond this. acting commissioner last came before the committee on the heels of a report detailing that irs wasteful spending on frivolous conferences and the revelation that the senior executives who oversaw the 501(c)4 debacle in cincinnati had receive significant performance bonuses. listening to chairman crenshaw as remarks it feels like deja vu all over again.

as the irs is charged with the massive undertaking of enforcing the individual mandate of the affordable care act, the greatest intrusion of this agency into personal health care this is a mystery. combating identity theft and refund fraud and addressing international compliance issues among many other competing priorities, you can understand why the committee views your proposal for additional performance awards and more training conferences with heightened security, hen scrutiny. we hope to ascertain how the irs would go about planning its training conferences to insure that they are goal oriented and effective as well as compliant with the irs procurement processes. i also, if you can explain to the satisfaction of this committee how and why

$62 million in performance bonuses are appropriate or beneficial to the taxpayer. as we are all painfully aware, we are in the middle of some grim budget times. and every federal agency, especially the irs, is to rebound to root out excess and waste. when we provide you with more than $11 billion annually to fulfil these duties, we expect you to spend it wisely and effectively. mr. commissioner, i hope that we have your commitment to work with this committee to achieve our shared mission of protecting the taxpayers and their hard-earned dollars. we look forward to hearing your testimony and wish you the best of luck. >> thank you, mr. rogers. now we will turn to the commissioner for his testimony. if i can ask you if you have any written remarks you would like to submit, if you can keep your testimony in the neighborhood of

five minutes it will give us more time to ask questions. the floor's yours. >> turn on your microphone. >> all right. mr. chairman, ranking member, chairman rogers, members of the subcommittee, think you for the opportunity to appear before you today to give you an overview. i am honored to serve as the air as commissioner and have the opportunity to lead this agency and the dedicated employees because i believe the success of the irs is vital to this country i want to outline what i believe are the key challenges and what i will focus on moving forward. first and foremost we started a new filing season four weeks ago, and over 39 million returns of been filed. these sometimes lose sight of what a tremendous a compass

mounted is for the agency to process 150 million taxpayer returns of 120 million being filed electronically. i am confident that the filing season will continue to go well. another priority for our agency is to put to rest of the issues and concerns surrounding applications for tax-exempt status. the management problems associated with a 501(c)4 application process has shaken public trust in the ira's. under their leaders the ira's has already made great progress in this area, and it is my job to help make sure we complete the work. in every area of the irs taxpayers need to be confident that there will be treated fairly no matter what their background or affiliation. public trust is the ira's most viable asset. the irs is to build on the progress that has been made to approve -- improve tax compliance. one of the most critical is

refund fraud. the irs has done much better at resolving and in the theft cases a close 963,000 cases last year of individuals who have had their identities to one which is almost a will for 2012. resolving those cases much faster. that takes about 120 to 1305 days for new cases compared to more than 300 days in prior years. we can and will do better. along with enforcement the irs is to keep looking for ways to improve the service we provide which is critical to ensuring our system of voluntary compliance worked properly. i am deeply concerned about the significant reduction in the irs budget of last year's. our current funding levels are just under $11 billion, roughly 900 million below what it was four years ago. we now have about 10,000 fewer employees than four years ago including 30500 fewer revenue

agents and officers. as a result the irs estimates it will not be able to collect billions of dollars in the enforcement revenues. in fiscal year 2014 we expect audits conducted by the irs will decline by an estimated 100,000. the number of collection activities will decline by an estimated 90,000. our biggest concern is being able to deliver services needed during the filing season. last year, as noted, almost 40 percent of taxpayers or unable to reach an irs employee. as the chairman noted, that is unacceptable. employers are doing their best to answer every call that they can. for the full year we estimate 18 million taxpayer calls will not be able to reach as. another area of concern is the amount of time people and having to wait to get in person help the taxpayer assistance centers. the above reports of taxpayers' money about some of those

centers well before they open in the morning to make sure there reserve -- receive service the same day. the best of employee efforts and expansion of on-line offerings only go so far to ameliorate the problems. amid budget difficulties i recognize that there has been a loss of confidence within congress and this committee in regard to the way the irs as manage its operations. one of my responsibilities is to ensure that we quickly solve management and operational problems that may arise so that congress and the subcommittee can be confident that funding will always be used wisely and understand the need to be careful stewards of taxpayer dollars just to us. i look forward to working with congress and the subcommittees' solve our problems. alcoa one of my legacies at the end of my four years as commissioner will be that we put the agency's in a more solid and sustainable funding level. this concludes my statement, and i'm happy to take questions. >> thank you very much.

let me start to question process in my opening statement and mentioned the issue about responding to the questions that people have. you just mentioned 40 percent of the calls went unanswered. and as we have this oversight hearing and we talk about how you spend the money i want to pursue how you make decisions in terms of priority. in other words, where the you decide to spend money and where do you decide you're not able to spend money when you have limited resources? by the way, this subcommittee oversees about 30 different agencies. your agency receives the largest amount of money. in fact, it receives more than half of all the money we are allocated to distribute to these agencies. so we have to make decisions in terms of priority, who is spending money wisely and do is

not. you obviously have leeway to make those decisions it seems to me that one of the most important things you do is deal with consumer services. you were like the front door. the phone call is the entryway to the irs. that is a lot of people's first contact with the irs to make a phone call. if they find that have the phone calls are not answered and if they do get into their lap to spend up to 20 minutes waiting, that is not a very good perception of the general public to have about the address and its operations of business. now, i want you to tell this committee how you make that decision. here is what bothers me. there is an old trick in this town where any time you need more money you pick out the most billable service that you offer and one that may be in place the

most pain on people and then you say, we can't do that unless we have more money. it is like you turn out the lights and the washington monument because we don't have enough money. when a sequester can they said we can't emptor's of the white house because we don't have enough money. it will of the veterans go visit the world war tomorrow because we don't have enough money. i'm not suggesting that you are using the old trick, but sometimes i have to wonder when you have a $11 billion you have to make these decisions it seems to me that one of the priorities ought to be to interact with people. so tell the subcommittee how you go about making that decision. i looked back ten years. in 2000 for 87 percent of the phone calls answered, and now was a time when the irs had 1 billion less than today. and that you have more responsibility, but my point

about how you spend the money is just as important sometimes us how much you have to spend. so tell us, if you will, do you ever think about, well, we have rent, technology, certain other things. obviously in this case you had $63 million to pay the bonuses and are pursuing a rule that arguably clarifies things. some people say it goes of the wrong direction. what goes through the decision making process beside where the money gets spent? >> that's a good question. spend a lot of time worrying about that question. trying to make sure we spend the money most effectively. there are some things that we have no choice about. the filing system which is why we spent a tremendous time and effort making sure well. we have not had any major tax law changes. the simpler the tax cut the better the filing system will go

we also do statutory mandates. if you tell us to do something, we well. we are spending a significant amount of time implementing the affordable care act. we don't feel we have any choice about that. the mandate from congress is that we should perform that. 75 percent of our budget is personnel. 10,000 fewer than we had four years ago doing significantly more work including the requirements that we implement those statutes. we have to make decisions. the only place we have discretion is in tax enforcement and taxpayer services. we have 30500 fewer people doing enforcement, 1500 fewer people answering the phone. we made more cuts on the enforcement side and the call side, but there are two sides of the same :. ultimately we depend upon voluntary compliance, and i am concerned, as you are, and if we cannot provide adequate taxpayer

service it will undercut the core mission of the agency. we received all of 98 percent of our money coming from compliance only 2 percent of revenues come from enforcement efforts, although that is 50 to $60 billion. many to protect the processes that go forward. is not a question of a few dollars one way or the other. we did have and our goal would be to return to those days when we had 85, a 6% return on telephone calls. >> when you look rant, contracts if we could save some money here and there, we actually in some more phone calls. is that pretty high up on your priority list? >> by the end of this year will be using a million square foot less of office space. the end of this year we'll expect to save 60 million by not producing all the publications be used to and melon and now.

none of us get the 1040 forms in the mail which saves a 60 million. cut the use of contractors by 200 million per year. we already have 300 million per year in annual savings and are continuing to look at ways to do better and will be happy to share that inflammation as we develop a. >> i appreciate that. i just think that ought to be a big priority, and i hope it is. >> thank you, mr. chairman. you have been on the job now the irs just over two months, but he spent 21 years in various public and private sector positions. because of your previous experience i would be interested in hearing what your first impressions of the ira's are. in particular i understand you have been going on a listening tour. what have you been hearing from employees? would also like to know what the morales of the employees after the hits that many have taken

for the behavior of a few. >> an important question. i joined the irs. i am doing that primarily because my experience is the people in know best about what is going on an organization of the people actually doing work on the front lines. i am listening to employees. i all the town hall. to the 300 employees. at lunch with 15 randomly selected employees. and after a couple of months the briefings obviously with everyone running in the department of any significance i have been fairly impressed with the professionalism, skill, dedication to the mission of all of the employees. a surprise to me when i went through, starting in cincinnati, talk to the chairman in jacksonville. what has surprised me is the level of energy and enthusiasm that remains.

these are employees that have not had a pay raise in four years, suffered to the government shut down, then having endured criticism over the last eight to ten months. you would expect that what i would hear would be a lot of mumbling are complaining. but as i heard continually across those ten cities have been to already, the employees primary concern is they don't have enough people. for them in the offices to help taxpayers. i have sat in call centers and baltimore, st. louis. their concern is not that they are overworked concerned that there are not as many people as they used to be answering phone calls. therefore they don't feel they are delivering taxpayers the services they deserve. people at the taxpayer assistance centers are also concerned about the people standing in line. to me it is a refreshing indication of the dedication of the 90,000 employees working for the irs.

the mission of the agency to provide taxpayers the services they deserve and expect them to comply with the tax code. >> in general you feel that the feelings of the staff is one of let's get the job done. notwithstanding the bad publicity and the shortage in personnel. >> that is -- it has been my experience. i thought i would hear even more rumbling about the fact that i have not had a pay raise of the fact that there were working overtime because of a lack of personnel. i personally talked to over 3,000 employees in offices with 20,000 employees in them. the constant theme has been we need more people that allows us to do the work. >> it is always a good time. i will take it out to think of federal workers. i no there is some small amount of members of both parties who would like to see no federal

government, but that is another issue for another hearing. i have great respect for the federal workers and the work they do. let me ask you a question. former acting commissioner conducted an internal revenue review that president obama requested to restore public trust. have the recommendations been carried out? >> we have the implemented and responded to positively all of the nine recommendations from the inspector general focused on the 501(c)4 situation. we have also done broader reviews of efficiencies in the organization trying to respond more effectively did the -- due to the demands that had been placed. >> how is my time? >> i think that is a yellow sign

>> which means caution. thirty seconds left. >> just one more question. the irs budget, 660 million due to the sequestered. what was the effect on air operations based on the reduction? >> we expect that if we had the police to question number we would have been able to answer another three and a half million calls, do another hundred thousand audits and collect approximately 3 billion more in enforcement activities. >> thank you, mr. chairman. >> thank you. let me turn. >> thank you very much, mr. chairman. but to have you here. let me throw out two issues, if i may. one is one that i have been dealing with your predecessors for quite a long time. fortunately the irs is not

always acted in good faith, at what time admitting to me in front of a number of people of they had been instructed to not tell me the truth, in other words to mislead the members of congress. the issue pertains -- >> i am aware of that situation. that would be my circumstance. >> your right. i am pleased that the analyst admitted to me. the persons that i was not authorized to tell you the truth which about was a sad day. you better believe it's something al will never happen again and pertains to an irs specific ruling. technical advice. all of the outside experts on the definition of political subdivisions, many around the country. this town effectively makes changes is retroactive. obviously this is not something of the ira should be doing in an audit. it should either come to congress or at the very least

propose regulations to make the changes perspective. calling into question millions of dollars of tax-exempt bonds in the hands of investors. not only this entity but many, many others around the country to the point where economic development projects have been halted as a result. those who have gone for having to pay higher interest rates because of the vagueness. commissioner, i have been trying to do this with your predecessors. need your commitment to you will look at this in a serious way to make sure the irs is not doing things in a way and retroactively in a way that is in essence changing 70 years of state law. >> i am pleased to look into that and get back to you. >> don't expect tea to have the details.

i do expect to get together with you and try to solve that. >> i'm delighted to talk with you about that further. >> the other issue is the ira's plans to move forward with the real time tax system. the subcommittee is placed language in annual appropriations bills prohibiting the irs from using any funds associated without seeking specific authorization. that language is panera. february 2013 and sent a letter to acting commissioner miller requesting that he confirm in writing the ira's six pitchers had ceased. the commission wrote back saying that the irs is not in the process of implementing a conversion. unfortunately later i learned that there has been money spent on that and there have been plans under way. i tried to find out how much.

i asked the irs how much funding have been spent. the response was there is a contract for approximately three and a half million dollars to explore a system that congress has specifically said it cannot do. told us that there were not calling to. later i hear from other committees they have discovered additional documents that show as much as $30 million. i cannot confirm that. two final questions. are you aware of any further implementation of any data collection system? and again, because that language in the appropriations bill seems to have been absolutely systematically ignored. will you pledge to adhere to the language in the current 514 on the bus cajon.

what i am asking is 100 percent transparency to this subcommittee on the other issue. >> i am happy to commit that we will follow. and we will follow all the instructions, whether given personally or in legislation. with regard to the real-time tax system part of the problem is different systems of been called a real time tax. the thing that has been the focus of a lot of external setting is their idea of pre populating return forms getting information and repopulate in it for the irs to even file your return for you which is what a lot of people have talked about as being the real tax threat. it would take a long time to be able to do that. we do have work going on to try to figure out to get better third-party information into our system earlier so that we actually matchup tax returns ride in the theft or engage in audits and have more data available in a more timely

manner. right now we don't get the social security or w-2 forms or the 1099 forms until late in the spring which does not do much much good. so some people internally have called that a real time tax system, but has nothing to do with the program you're talking about. there's no program that i know of going florida and we don't intend to do anything like that. >> of the court to working with the commissioner on these two areas. >> thank you. >> thank you, mr. chairman. welcome, commissioner. in addition to everything else you have going, this is a historic filing, the defense of marriage jack was struck down last june by the supreme court. and so for the first time same-sex couples will be filing federal tax returns to the. the first filing. what education within the irs

and the side of the irs is taking place? our you helping to educate the public and making resources available to people, particularly with complexities involved? as you know, different states have different laws. i have residents in my district and state your marry in iowa. illinois is just now beginning to recognize same-sex marriages. what is the irs doing to deal with these complexities? >> one of the things that did surprise me is the amount of out reach the irs does is a general matter taxpayers. we have a website which if you look at it today is very different than it was a year ago . of we have wonderful partnerships with tax preparers to edifies. we give them information, share information about what information clients will need. we have a youtube channel with

over 100 instructional videos. we just put out our first advice to taxpayers this week about starting to look forward to have to deal with the affordable care act, particularly advising taxpayers if circumstances change. they need to adjust the premium tax credit. in the defense of marriage act we have been putting out reminders. we remind people when it is time to pay your estimated taxes. there is a tremendous amount of time spent reaching out trying to educate them as much as we can about the tax code as i somewhat facetiously said. it may take awhile for we can convince people. we do spend a significant amount of time doing what you're talking about. prior to and during the filing season we give people as much information as they can get. this year we are advising people not to call if you need to find of the budget refund. go to the website and push the tab.

to london 50 million people get information. this year for the first time you can go to the website, authenticate you are and get transcripts of previous filings and print them out of home. you don't have to come to an assistance center. partially to the chairman's concern which is we can't just sit around and see what will we do. we spend a lot of time trying to say what information taxpayers need to mccall about, how much of that can we give them. we do things. >> you recognize these are unique circumstances. a lot of taxpayers need additional assistance. all the resources are helping these new filings. >> the people who are on the phones have and permission about that. if taxpayers colin get through they can get that kind of information. it is on the website. proactively get information out to taxpayers before they fill out returns and before they feel

they have to call. >> your predecessor talked about identity theft. nearly 250,000 reported to your agency in 2011, and 8,160,002,012. obviously this is an alarming increase. what are you attributing this to ? >> it has been an explosion since 2010 through the last filing season in terms of people either borrowing, stealing, going to -- getting social security numbers and filing false returns. we spend time in jacksonville with a wonderful task force that jointly between the irs criminal investigation and state and local law-enforcement have become much more aggressive at pursuing this. we have had 1500 investigations

up from 300 the two years before . we had a substantially increased sophisticated filters system that a gun fire suspicious returns as filed. last year we actually saw a plateau in the number of returns that came true that we were able to tax. we think that between 1,000 indictments' up from 165, we think we're getting some of the people off the streets. getting the message out that this is not a free game. you cannot simply buy or steal a social security number and get a refund without being prosecuted, but it is a significant problem. we had in the budget proposed $100 million of itt work that was not included, but we are figuring in other ways. part of the funding was for just this purpose. it is going to be a problem. we think we have it under

control. we're able to resolve the identity theft problems much faster than we used to, but it is one of the three or four highest priorities and we have an attack to ministration. >> thank you. >> lot of discussion earlier. what are some specific examples to back. >> the cover a gamut. everything from garden clubs to advocacy groups. and, in fact, the vast majority of 501(c)4 applications have nothing to do with political and activity. a relatively small percent are in that area. one of the issues, we talk about the proposed draft regulations, everyone is focused on the fact that it is really just political organizations. probably 90 percent have nothing to do with political -- >> the specific example.

>> under this rule there would be any organization that as a social welfare organization providing information to the public that engages in political activity in a political campaign if you are an organization and you are providing information about any particular subject matter that would be viewed as social welfare. you then start running ads for a candidate in a campaign supporting that, i would be political activity or campaign activity. >> is it not true under the proposed definition that it is in the public communication which would be considered a candidate-related political activities that identify that candidate for political office. >> your question, there is a draft regulation. we expect over 100,000 comments. it is asking for just this discussion.

that is what i assume. there are three issues. one is what should be the definition of political activity what should be included as not appropriate for social welfare and what would be in that pool? the next question is how much of that -- >> is there not a proposed definition? >> there is a proposed definition. my position -- >> is that the proposed definition right now, the one i just read that is of political activity? >> as proposed. the, the people are asking is what are the options to that, should it be required at all? >> let's assume that definition stays in place. >> i would like to not assume that because i think that what we need to do is review the hundred thousand comments which i am going to be involved with. as a joint regulation. as i said in my prepared testimony, my goal is that

whatever comes out of this of their is a regulation is not guarantee that there will be one that is clear, fair to everyone, and easy to administer. the ira's is not a political organization. >> right. i just heard you say that although it is a proposed definition right now you hope that that is not the final definition. >> i hope he would not put those words in my mouth. what i said was one of her regulations that come out of there is one is one that is clear, fair, and easy to administer. >> i thought i heard you say you hope that is not the final definition. it did that were final it would mean based organization can issue a voter guide on the public positions that have been taken to consolidate the information to assist voters. >> if candid it's our mentioned and that is within 30 to 60 days depending whether it is a primary election, that is what

the proposed -- >> the planned parenthood would not be able to issue voter guides as well. >> within the campaign. that is where the draft would be. that is where the comments are. there will be ultimately a public hearing at which congressional members as well as the public will be invited to attend. >> under the current definition, does that mean the american legion with the vfw is able to make phone calls to notify voters that want to register to vote, maybe a potential voter or to notify voters about candidates and their position on military defense positions or expansion or defense in general. >> again, the proposed draft for comment with said that voter registration drives within the context of a campaign would not

be allowable. the other question that needs to be answered it, help everyone understands it is a question of what the definition should be, how much of that activity -- it is not propose that people have no activity but how much of the activity has defined cannon organization engaged in before jeopardize its tax exemption. ..

appointed a special review board that reviewed it. the leadership starting at the ground level all the way up through the exempt organization leadership structure has all been changed. >> it's been substantially it's been justified all the actions, all the reprimands have been taking care of then you are satisfied with the the organization is going now with the way it's handled? >> i'm satisfied that the ig had good recommendations for training for guidance for better review of how organizations if there are questions how they are handled. i went to cincinnati and talk to people to make sure people are comfortable and that in fact whatever the issues were before have been solved so again i think as i said it's important going forward and we have six investigations going on because i said i'm looking forward to having one or two of them finish sometime soon so we can see with the actual determination of the facts are and we will respond appropriately and accordingly and let you in on our responses to that but people need to understand that going forward

from this point forward anyone dealing with the irs any taxpayer should be comfortable if they are going to get treated fairly in the same way anybody else's no matter what their political affiliation whatever their organization is whoever they voted for in any election recently whether they go to church or don't go to church. if they deal with the iras they will be treated in the same way everybody else's. if you get audited with limited resources we will do 1,400,000 audits a lot of them by correspondence but if you'd do the letter of correspondence you need to be confident and comfortable that that's because if it was in someone else's return they would get the same response and it has nothing to do with what meeting you when two or what organization you belong to. >> thank you. we will turn to mr. amodei and in your absence we have welcomed you so we welcome you again in your presence. >> thank you mr. chairman. i hope my residents residence

will be better than my absence but i guess we'll go from there. thank you mr. commissioner and i'd want to follow up on a report of mr. graves. i looked at your statement so i assumed you have looked at it and this is your statement and i'm assuming you have help repairing it but this is your statement you stand by for the reason for the hearing today. to implement tax related provisions of major legislatilegislati major legislation and you reference the aca and the fact i would like to focus for a minute on the genesis of the regulation rewrite in that do you know when 501(c)(4) was first put on the books as legislation generally collects let me tell you why i am asking that. we are at talking about redoing the regulation is the result of what happened i don't believe in cincinnati but all the way up the line so i'm wanting to know how 501(c)(4) worked before this latest round of stuff that

started with cincinnati. >> the regulation was drafted in the eyes and howard administration in 1959. >> are you up aware of any major major problems where it's all been looked at by the ig from eisenhower forward to what we are talking about now? >> i am not. >> thank you and i appreciate that. i know you weren't there so going forward and congratulations on your timing by the way. >> some people would say that the time makes him so good. >> it's better than others. can you tell me the genesis of how it was decided within the irs we need to take a look at 501(c)(4) into new regulations and let me tell you why i'm asking you you that to help you out. i get that you want to restore confidence in the procedures and processes and good for you but as you indicated in an earlier question there was no major tax legislation recently which aided in your folks preparation so why is 501(c)(4) now on the top of

the regulatory keep? >> i do not know. it's on the top of the heap now because a there was the ig report noting that there were difficulties in the 501(c)(4) determination process and one of the strong recommendations by the ig report and subsequent testimony was that the treasury department and the irs should put on their priority form review and clarification of the requirements. >> so that was generated internally as a result of ig operations at the department treasury? >> no i'm saying all i know there was an issue with the ig report reported and recommendations, the strong recommendation was that a recommendation be considered as part of the priority process in the treasury at iras and that is what happened. what happened before that i wasn't there and i don't know. >> as you curious as to anything before? >> no, this point i have spent 40 years 20 in the private sector.

can i just give you my answer? >> you can't on my five minutes. i know you are not trying to evade anything. can you tell me what her resentenced irs's budget is devoted to 501(c)4 staffing. you talk about resource challenges and priorities so what percentage of your operations go to 501(c)(4) administration enforcement and investigation? >> well, off the top of my head i would say it's got to be under 1% significantly in the sense that we have 90,000 employees. only 800 work in the entire exempt organization so it's a very small. >> it's 1% of your budget. >> it's 1% or less. that's an estimate i would have to take a look at. it's clearly at this point you know only 1% of the employees working in the entire exempt organization and the 501(c)(4)'s

or 5% of that so you are talking about .2%? >> i'm going to read off for five things here in the context in priorities. you have the aca you are working on. you've got issues with conferences and spending money. i will do the math on generally what that is in your budget. you have bonuses that are in the the -- 501(c)(4)'s and taxpayer systems which he devoted a lot of time too. the number one priority for regulatory reform out of those is 501(c)(4)? >> it's a priority because it has been the issue. >> is that the number one priority reform or not out of those five things? >> i'm sorry you are asking about regulatory reform. we are not reforming aca we are just implementing aca pay there's a set of regulations. you are talking about my priorities i would say if we can

solve the 501(c)(4) problem and put it behind us that clearly is one of the five or six priorities i have. >> you see my question where it's less than 5% and talking to this committee about her concern for taxpayer service our concerns about getting this 501(c)(4) right in the aca which happens to be a small project floating around and internal management albums that you have inherited and i appreciate all that in terms of conferences and bonuses and stock like that and it's like really? a law that has been around for 50 years and this is what's going on in the regulatory firm. my time has expired mr. chairman and thank you but i look forward to interacting. >> i would be happy to sit down and have a longer conversation with you. >> look forward to it. >> mr. yoder. >> commission are welcome to the committee. we are pleased to have you come before us today to talk about certainly a friday of issues that are important to constituents at home and many

hard-working american taxpayers that are faced with the irs. last year in the midst of the outcry over the nsa and the irs targeting of specifically conservative groups based on ideology there was a well-known breach of public trust occurring at the irs and other federal agencies that was brought to light which i think is more stunning than some of the other concerns that are constantly raised in the media and that was the irs and other federal agencies admitted that they were reading the e-mails and electronic correspondence of americans without a warrant without respect for fourth amendment privacy protections and the irs went so hard to be brazen enough that americanamerican s do not have a reasonable expectation to privacy when it comes to their e-mail correspondence. stunning. so under your leadership my question would be for you is the irs continuing to read the e-mails or other like tronic

private correspondence of americans without a warrant and secondly when it was revealed what are you aware that it was reading conservative and liberal e-mails a bullyer was the targeting those private readings without warrants on conservatives as it was targeted by other portions of the irs? >> this is the first time i have heard that the iras read anybody's e-mail so i can give you any further information but i will definitely look into that and get back to you in answer to your question. >> i appreciate that and if that is occurring sir with you to the committee of greece that it no longer occurs at the irs? >> if we have no authority to do it then we should not be doing it. criminal investigations to investigate. we have had 4500 recommendations for indictments last year so there is a whole enforcement arm of the irs that you know has law

enforcement authority and works with the justice department and state and local governments. i don't know how much is in there. >> the iras agencies have argued that they have authority under the 1986 law that does not treat electronic correspondence the way it treats other correspondence. this is outrageous to a lot of constituents on both sides of the aisle and interest groups across the country of spoken out about this. i introduced a bill along with my colleague and democratic members that has 175 bipartisan co-sponsors to be sure that this practice stops in a friday of practices. i would hope you could ensure that you would -- that the iras not engage in that practice and americans can trust that their private correspondence is not being read by some irs agent without a warrant for following due process protections outlined in the fourth amendment of the united states constitution.

>> is a serious matter and i take it seriously. i will look into it and personally get back to you. >> the issue has been raised regarding 501(c)(4) groups discussed in this committee and many committees and it's an issue that many americans are concerned about. i understand the irs is attempting to write regulations that might make the enforcement potentially easier on the irs. the biggest concern that many of us have is that most americans didn't have a lot of trust already and now they have very little trust that the irs is being fair in the enforcement of the law. i've had folks say that they don't want to get involved in campaigns or be associated with any groups because they are a afraid they'll be personally subjected to audits and i'm sure you would say and i hope that's not happening but regardless of the rules whereby it is not the rules themselves but how they are enforced and whether we can trust the people, the individuals in their private

moments to do the right thing so what can you do to ensure that folks like lois lerner and others if the rules are there that they enforce them fairly. that's the biggest concern for my constituents. not the rules but the rules are enforced. >> the public needs to have that comfort and confidence. one of the reasons i spend so much talking to frontline employees is to make sure that the culture encourages everyone at all levels to raise issues of concerns whenever they have them. i have told people everybody has to be a risk manager and one of the important things is to make sure we are treating taxpayers fairly. we have a lot of free view processes but it does depend on and my concern is to make sure that any employee that is concerned or has a problem or sees anything going on that they feel does not reflect well on

the iras and doesn't treat taxpayers fairly they need to be comfortable that they can race that direct way either with me or anyone else. >> to that end sir we have commissioner shulman come before us and can arm long before this became an issue and we asked him in this committee is this happening and he assured us that it couldn't happen and it wouldn't happen so we have heard these assurances before. just be aware that the trust is not there between congress and the irs because we have had folks sit in that chair and say you can trust us. >> when i get parachuted into these things you play the hand you're dealt and i have spend a lot of time second-guessing decisions but as i have told employees our goal is not to have any mistakes. we have 90,000 employees can't compete hitting the tax law. my view of running an organization is that there's a problem it's my problem and we will work on it together. if there's a mistake it's my mistake and we will work on it

together and if there's a problem i don't know about that's my fault because that means we don't have a culture where issues problems and difficulties get raised through the system so my view is i'm responsible and accountable for everything the agency does and whenever we make a mistake we are going to find it fix fix it quickly and we will be transparent about it. if i don't know about it it's my fault because i'm trying to get the organization comfortable and as i have told every individual needs to feel bad news is good news. i can't solve a problem unless i know would exist. i appreciate those statements of personal accountability and responsibility and i look forward to the results. thank you. >> thank you. ms. herrera beutler you are recognized. >> thank you commissioner for being here. i have a couple of questions. not quite where mr. yoder was coming from but on the issue of social media, twitter and facebook. last year the irs went through a

process of reviewing and a dating its policies on the use of social media quote specifically the iras is concerned what limitations of any should be placed on publicly available social media information in a collection action and in a new internal procedures would be made public. i guess i was curious and i had two thoughts about that. how do you go about deciding who you are going to read up if you are going to go that route? is it someone that you are trying to collect information about for a collection action or is it that you are looking at putting together part of your division that is going to specifically control on line spaces? what is your thought process going this route? >> our thought process is when we do examinations into me send you a letter about something in return we do not go and look for

whatever your facebook account might look like. that is not efficient effective or appropriate. when there are criminal investigations as i said a criminal investigation department will use all the information available in tracking down people in tracking down assets so i think it's appropriate for them to use whatever information they have but that is when we are tracking and people who have violated the law and not paid the taxes that they owe. one revenue agent made a good point to me in philadelphia reidy said we have to distinguish between the willing to pay you have difficulties in the unwilling to pay and the unwilling that have difficulties is because they have a problem in their family. we have to deal with installment agreements are a compromise. they are different from the people who are unwilling to pay in hiding assets and storing them offshore. my view is we should chase them to the end of the earth and we can use social media to find them we have to do too.

>> so you are saying you use exclusively facebook and twitter for unwilling to pay so you are not using facebook and twitter for -- investigations? >> i don't know the answer to that and i will be delighted to inet and share with you that answer. >> please share it with the committee. >> i will share it with the chairman and everyone. >> kind of switching gears i got a letter from a constituent who lives abroad and obviously has serious concerns about the tax compliance act and his observation was that a large number of americans who are voluntarily compliant with this with our tax code, and this law is detrimentally impacting those folks. obviously you are wanting to go after people who are not, but what he was saying and what he is seeing is that you know his

bank account has arctic enclosed he has other accounts and specifically his bank cited this law as a reason so he is losing different services and he's concerned about other accounts he has in here he is trying to be compliant and has been compliant. basically as comment to me was ,-com,-com ma i'm being punished for having an american citizenship. i am following the spirit of the law, not just the letter and here i am losing services in the countries that i'm living that have these accounts because they are citing this law. what are you doing about, so you talk a little bit before about going after criminal investigation. what are you doing to make this easier on law-abiding citizens who are trying to comply who are getting these? we don't want them to have to disavow their american citizenship trades be one of the things we are looking at as we get the information is how to make sure that we provide, and

poses little burden as we can on people that have been compliant for some time. the problem isn't the irs. the problem we are running into our banks. some banks in some countries are saying rather than determining who is a native and a foreign-born participant we will only deal with resident citizens and they are saying if you are not a resident citizen we will provide you services. that is not a widespread activity because banks are anxious in this global economy to deal with citizens wherever they are coming from and we are not the only country engaged in this effort. but it is unfortunate wherever a bank in a country axe decide if they are only going to deal with their own citizens you would think it would be penny-wise and pound-foolish because they are missing out on people like your constituent corresponding. whatever we can do for people who have party been compliant to try to make sure that we don't impose unnecessary burdens on

them to any extent we can we build that obviously we don't control foreign banks. >> really quickly if someone has a challenge whether it's this person overseas or whether it's a small businessmen i sat next to on my flight over here who feels like he has been, he has received restitution -- retribution for speaking out in the form of the beautiful audit. if someone has that concern of a feel like they have been unfairly targeted who did they address it with? is there a third independent group or do they have to come back to you? >> they could obviously feel free to contact me personally but the taxpayer advocates set up independently by statute, they can contact her. the inspector general does a very good job of personally issuing specific complaints. my view is those are important sources of information. i chaired the agency of

inspector general and the inspector general provides a lot of information. igs don't create the problem. they discover it before it better and more complicated. i would think anytime they feel feel that way they should feel comfortable contacting the taxpayer because i do think going back 30 seconds is we are going to do 1,400,000 audits and some of those people are going to be republicans and some are going to be democrats. some of them will be people who never go to church and some of them will be people who go to church regularly. it's important for those people to understand they are not getting that letter from the irs because of where they were last week at a symposium. they are getting that letter because there something in return we are asking information on. >> to that point and i will cut it off here you will have to prove it to us because they have to see that letter because of

political ideology. we look forward to your information. >> it's intolerable for anyone to have it happened and extremely corrosive to the tax system to think it might happen and we -- they have to understand the highest priority is to do whatever i can to restore whatever trust has been lost by the american public at the irs. we want people to pay the right amount, not more not less since when you deal with this we will do if you fairly the same way we will deal with anyone else. >> thank you very much. we have some time for another round of questions if members have any. let me start by asking two questions. one has to do with the 501(c)4. there has been a lot of discussion about that in my concern as i said in my opening statement as it seems to be

premature in the sense that these investigations were going on and didn't have all the information and i think the subcommittee recalls we put a provision in our markup that said we would not spend any money that was appropriated under this bill to work on that rule. that was adopted by the full committee and the full house and it didn't make it to the omnibus bill. but there was concern that when we have limited resources that may be that something that could wait until we have all the information. that didn't happen and i assume that you plan on stopping that anytime soon. let me just ask you when do you anticipate finalizing the draft regulation. for instance are you going to finalize the draft before the elections? >> i think the chances of it getting finalize before the november elections are fairly slim. we have an overwhelming amount

to take into consideration. there will be a public hearing and there will be more opportunities for people to provide information to us. if there's going to be a regulation there is no guarantee. there's going to be a regulation and it has changes and it. it would very likely be republished for more comments so as i say i hope at least of these some of these investigations will be done well before we get to the finality and whatever regulation might come out. we need to know what the facts were in that particular circumstance although again the general issue is how do we provide clarity not just for the irs. my concern is if we were organizing and advocacy operation i would be appreciated if if i had guidelines on how to organize it but most importantly clear guidelines as to how to operate it. two or three years down the road to more clarity we can provide as to what you can and can't do with and how much of you can do

without being in jeopardy to seems to me is important. the facts and circumstances test and the unclarity about how much political activity can you do everybody is sitting out there wondering how does a get measured, it is this going to count on one side of the equation or the other side of the equation? and i just don't think it's helpful for us but it certainly is and help for -- helpful for people running the organization. >> i guess if there is this bed of ross says that may be an equally important question is do you think these draft regulations ,-com,-com ma have aortic produced a chilling effect as people decide gee maybe we better avoid political activities because we don't want to jeopardize our protective status? might that happen?

>> i don't know. i haven't seen any studies or surveys about that. we have tried to emphasize that we have revised and taken the ags recommendations into consideration in her vita training and oversight in the process so we encourage people to continue to file applications and we have a streamlined process that would be set up to solve the backlog which says if you will simply say you are not going to spend 40% of your time on what has been historically viewed as political activity you can get a streamlined approval so you don't even have to worry about the backlog. >> the last question is you think -- i think you had to this a little bit whether you will wrap up these loose ends in one final regulation or maybe a series of regulations that are adopted over the next couple of years. do you have a judgment about that? >> i have no idea. from my stamp what i'm trying to keep in open mind and see what

the comments are. there's a complicated question of what should the definition be applied to? should it be applied to 501(c) applied to 501(c)(3), 501(c) five, six and seven and those are important questions we don't have an easy answer to. again my instinct is the clearer it is and how administrative will it is the better off we will all be. >> let me ask you one quick happy question then that is i found out the first time this last week that there is a program called free file that the irs has in conjunction with a lot of folks that prepared tax services and we had an event in my home district to try to make more people aware of it because i'm not sure everybody is aware but if you make less than $58,000 a year you qualify for the free file and you can actually file your tax return for free because of some

arrangement the irs has with this alliance of folks. they told me they had to renew that every five years with the memorandum of understanding so in an effort to make more and more people aware they said 70% of the taxpayers might be aware or eligible for this free file. tell us very quickly if you think that's a good idea and if you plan on signing a new memorandum of agreement to extend it for another five years? >> it is a good idea. every time i do a filing season discussion with the press i try to emphasize that we have disagreements with 14 providers from all the major ones you would think of. you can go on the free file web site, 100 million americans are eligible. you can actually file for free. you get the same treatment you would if you are in one of their offices and it's a wonderful partnership. we do plan to renew it and try to get more visibility to it

because i think tanks -- taxpayers are comfortable in doing their return without a provider offers the circumstance. >> you are from the irs and you are here to help us so thank you for that. mr. serrano. >> thank you mr. chairman and i hope you give me a little leeway in using a little more time to say that i totally agree and i know that shocking to some folks. i sponsored his bill, cosponsored his will as ranking member i participated in a voice vote on this amendment last year because whether democrat or republican i don't believe that our privacy should be lost so when you hear about government perhaps reading e-mails, that is unacceptable.

unacceptable to us and unacceptable to our democracy and i'm beginning to hear some people say well if you have nothing to hide. it has nothing to do with having nothing to hide. it has to do with the constitution with this country is known for in the fact that so many people throughout the world would like to imitate who we are who we think we are and we shouldn't have that. that doesn't mean i sign on with those who would like to disable government agencies to the point where they can't function but on this we agree that americans have a right to privacy and that should be something we protect. i think the big headlines tomorrow will be serrano and go to agree on something and that's a good sign. >> i'm happy to be the catalyst for that. >> as soon as you tell me where the hosting czar. i have no idea. let me get this straight. if you have 501(c)4 status you

are not supposed to engage in activities that are political. if your activities are primarily political than my understanding is you can register an exempt organization and another part of the tax code section 527. the problem for some organizations is that they do this they will have to disclose who their donors are as opposed to being registered under a 501(c)4 where you don't have to disclose who funds you so even though these groups could choose to be registered they don't want to do so because they would have to disclose their donors. am i correct in that? >> that is correct. >> and not putting you in the spot where you have to try to figure out what happened in the past, was that part of the problem that people were doing this and therefore there have to be scrutiny and may be that

scrutiny went overboard? >> as i say i have not spent a lot of time looking forward because -- backward because we have six investigation going on. there was an increase after the spring court case in 2010 with organizations and public discussion and debate and political activities. the volume went up to some extent and became more visible. for a long time nobody paid attention because most of these organizations were not visible as we go forward but i do think again if the process is clear people to make the process ought to be able to make that choice but a major factor in the choice understand is that if you were a 527 you could spend all your time and money on contributions would be visible. if you are a 501(c)4 a social wealth organization needs can only spend a certain percentage of your time. you have to be primarily a

social welfare organization not engaged in whatever is the definition of political activity. >> now do you think that, or maybe i missed something. do the rules define once and for all what his political activity or will they define what his political activity? >> that is the whole purpose of the draft and a 100,000 comments back in the public debate which i think is an important one about what should be the definition and whatever the definition is, to that activity should you be allowed to do before you jeopardize the status of the social welfare organization. it's not a simple set of questions. it's a complicated issue to figure out how to deal with that in a way as they say that's fair to everybody. i think the criticism needs to be considered and the comments to be sure that this applies fairly. it is not viewed as singling out a particular group of people

which is why you have to look at which sections of the 501(c)(3) whatever rule that comes out applies so those are important difficult questions. as i say somebody new to the game my goal would be to say if it's clear fair and important easy to administer will be better for the irisin ultimately better for the groups operating. two or three years down the road to continually try to figure out what does this mean and that is my concern. facts and circumstances had in a position of how have the facts and circumstances changed? it doesn't do us any good and gets us involved in a lot of decisions we would be better off not making. >> one quick last question. $200,000 for training of employees in the exempt organizations. please explain how you will use these to prevent the types of problems from happening in the

future. >> training is important. there has been a concern and i share that concern. the training session that went on was in 2010 and omb has made it clear those sessions aren't going to happen and they have to be approved at a high level. in the particular case of 501(c)4's in response to the ig recommendations we provide clear guidance to employees and provided or training in one of the recommendations was to provide training before any elections so we make sure people understand what is appropriate and not appropriate in terms of reviewing these organizations as we go forward so we are comfortable that while the standard is still facts and circumstances which is a little hard to know about we are comfortable we have much better training and much better visibility and oversight on this issue. it goes back 50 years and nobody paid a lot of attention to it which i think is part of the problem.

>> i know you have a very difficult job ahead of you but if it makes you feel any better understand that all the years i have been in public office and that's 40 now i have always known that the irs was never very popular to begin with. that bad in the ins were right up there with some folks. so yes you have a challenge but no, this is not new. there has been a distrust for many years of the irs by the public and this is something we have to keep working on so thank you so much for your service. >> thank you. >> mr. amodei. >> mr. commissioner thank you for answers and i appreciate that. i want to just a couple of things. one is when we talk about transparency and all that sort of stuff any plans to release

the learner e-mails to any of the other committees in the near future and let me tell you why i'm asking that. the context of the proposed regulation, the context timing wise as we go forward is something that i don't think anyone in this room -- even though the 50 years may not be important but on the heels of what has happened with 501(c)4's and then if that had not come to light the ig wouldn't have taken a look at that and that if that hadn't come to light so you sit here and say going forward and i respect that we want to be open and transparent in all that other sort of stuff but when you say by the way as part of that we are going to define political activity and god lets you for your courage. it sounds like defining obscenity to me and the supreme court upheld that a long time ago so good luck and i wish you success but i sit there and look at that and say we are going to does define political activity. with all due respect to

regulation will have the affect of subsuming whatever the 50-year-old law is when you define political activity in the political branch. if that needs to be done and we have to have this debate with all due respect. when did those learner e-mails go to the meaner committees than this one? >> first of all i would correct a slight technicality. what has been in place is the regulation. in 1959 there was a motion that set in motion the laws we have today but you are exactly right. even if we end up with the regulation and congress has the authority to change the statute or overruled the regulations so it's not as if the irs and treasury have carved launch to do whatever they want. with regard to the investigations i am in the process of having further conversations with chairman camp of the house ways & means

committee. about just your question and we are anxious to provide a safe told chairman camp when i met with him a month ago which i think was very helpful a list of things and items they needed to have to give them closure they were anxious to get in all the information he needs to make his decisions so we are working with the committees and working with the senate finance committee as well and the other committees. we have four congressional ones going forward. we want to satisfy them that they have information they need to reach the determination about the determination process. >> it's nonimportant terms of who did what to who or who shot the sheriff. it's important terms of looking at this regulatory proposed action and was this a flaw in the regulation or was a something out of the ordinary for purposes because i mean to listen to this today it's like yeah we are changing regulations. not you but in general. it's important in examining how

the regulatory body was working before this latest issue came up not in terms of who got caught doing whatever so with that i think you and i look forward to visiting with you and thank you mr. chairman and the yield back. >> let me make -- say couple of things to make sure we have clarity. the ig report was in, my understanding had been underway when the irs acknowledged that it in fact had been inappropriately highlighting organizations for review in the 501(c)4 area but the ig investigation had been going on for some months in the draft of the regulation was a recommendation from the ig but you are exactly right we need to provide as much transparency as we can. my goal on the investigations as i said is to do whatever we can to get all of the investigators the information they need for that determination process. when you start a new

investigation in the regulatory process that's a different investigation than what we have been dealing with over the last eight to 10 months. my thought about that as we are happy to get information about that but we can do a series of investigations all at the same time. >> i guess it would be nice to have a rule to say you can't take out people based on their political philosophy and holy and intimidate and harass them. that would be a pretty clear rule. >> i think that's the rule. >> i guess that got violated. >> there are investigations going on to find out if they were and how. >> thank you mr. chairman and at this point i would he happy to yield to mr. serrano to say anything nice you would like to say about me. he ran out of time and i'd like to provide additional time for you. i want to thank my friend mr. serrano for his comments and as you can see on that issue we

have strong bipartisan support. i know we have your assurances that we will try to fix that. there are a lot of issues i think we agree on in this committee and across congress that don't always get the media headlines so it's nice to find more of those do we can work together on and i appreciate mr. serrano and other folks on both sides of the aisle working on that another and other issues. i want to give another -- that we have a partisan agreement on in this comes from constituent as i asked what question should i ask the irs commissioner? what would you like to ask and i think this is a very important question and one felt by a lot of americans. we talked this morning about the trust deficit that exists between the internal revenue service and americans particularly in light of what i will term as much more egregious than maybe we heard from my colleagues on the other side of the aisle this morning, the

abuse of the code to attack ideology and we will continue to investigate not only your investigation you have internally but here within congress serious investigations and people need to be held accountable more so than they have been but that being said the cpa in my district asked in mick's a point that he's a cpa and the tax code is difficult and i think we would all agree with that. 10,000 pages. how can the irs make it easier or qualified prepares and regular taxpayers to efficiently manage their taxes to find quality service without the threat of onerous penalties for unintentional oversights or misinterpretations or unintentional errors and additionally how can there be less of an adversarial relationship between the professionals and the irs when dealing with the problem of taxpayers as well. absent new dollars.

it's not just in the function of dollars. how can you operate the irs in a different way to improve that relationship because you can imagine if you are a cpa or a hard-working american who does their taxes it's a nightmare to figure out how to sort through this. many of us in this country and on both sides of the aisle think we need tax reform and i would like your comments on that sir. >> i strongly believe tax reform would make it easier to find out how much they owe. most americans are if you tell them how much they owe they are happy to pay. we have a think an important partnership with prepares and those who are qualified. they are always concerned about unregulated preparers around the periphery who sometimes engage in fraud and sometimes are uneducated and do provide good service but for people like you

constituent we have a lot of programs trying to reach out and provide as much information as we can. i would hope that as we make the web site more user-friendly. it used to be clunky and extreme and we are spending resources because we do think it's important for taxpayer service but we value the work that prepares do. they are our outreach to clients. if we can have them comfortable that they understand the intricacies of the tax code it will make it easier for their clients. one of the things we have is they shall tax preparer line you can call. one of our concerns is the resource constraints. we have heard from prepares that they have to they have to sit on the line longer and i don't think that's fair to them. if they have to wait a half an hour or 45 minutes on a special wine, if they have five or six clients they could waste a significant amount of time. all i can say is the value that preparer community and we will continue to reach out to them.

the best thing we can do is provide as much information and guidance as we can. >> sir it's also a function of style and she know they take the cues from the person leading the organization said the efforts you can make to make sure their relationships are less adversarial and more supportive. americans feel these federal agencies are not there to work with them but rather to work against them. it's a common problem in every agency and i hope you will do your best to try to fix those problems at the irs. >> one of the advantages of this tour i'm on is i get to talk to the people doing the work. in philadelphia had a productive meeting with revenue agents in revenue offers -- officers. revenue officers you think are banging on your door to collect. if you're willing to pay and you have to fix these that we will work with you and we want may keep feel uncomfortable. the biggest problem that has is

a lot of times people don't respond to notices from the irs. their point was making sure people understand if you are just having trouble paying your taxes we will try to work with you. the people we don't like are the people consciously trying to hide their assets moving around the country engaged in fraud. those people we don't have to be very nice to. if there is an honest mistake made and people didn't understand and are trying to pay we ought to have a productive working relationship with them. >> if i might mr. chairman one quick budgetary question. mr. amodei asked this in a different way but i would like to know if you could follow up with information for the committee how many hours and how many dollars have been spent related to the controversy created by the investigation related to 501(c)(4) groups last

year and the reforms were the changes you are looking at now. i know you said it was less than 1% of your budget and if you could let us know the impact. i know this is prior to your time but these things do have an impact on time that could be spent elsewhere number one and number two how much money has been spent and how much are you requesting related to the enforcement of the affordable care act and the impact that is having in your agency. several years ago the irs has repealed for hundreds of millions of more dollars to hire more agents to go out and make sure small businesses and americans are following the government banned -- mandates regarding this law and i would like to know the cost to the irs and where you are funding those resources. >> that is a question i've been asking and that is the 2014 presidential budget for the irs proposed $440 million from the affordable care act in

330 million was for information technology. none of that funding was provided so we are, one of the constraints we have is we have to pay for the i.t. particularly as we go forward. the 100 million is primarily for preparing for and dealing with information issues and making sure that they work. as you can imagine one of the reasons -- i am committed that we will at this time next year have an effective filing season which means we will be effectively implementing our responsibilities under the affordable care act. the difficulties were not irs difficulties. it's one of the things we have to find in other areas of the irs. >> a qualification points mr. chairman. how much does the irs spend annually on the affordable care act and how much is a project to spend in the next year? >> what we are spending this year and what our estimate is

for this year, obviously one of the issues that is going to happen to us is that late in the fall but during filing season next year because it's a new requirement we will have a lot of inquiries from prepares as well as taxpayers if they are in the area of being eligible for over premium tax credit and if they aren't making sure they're comfortable filling out that return. we started that information campaign this week and we will spend the rest of the year trying to get prepares and taxpayers comfortable that they understand. 70 or 80% doesn't have anything to do with it at all. we have a big chunk of people that won't be affected by it but we will get you in the committee the information about over the last two or three years how much of we spent from itr personnel or affordable care and what are we spending this year and what to respect requirements to be for next year.

>> i'm sure the next time you appear before his there'll be a lot of questions about the dollars. >> i wanted to ask about on this is really quickly. making sure the bonuses that are given to employees have shown improved performance or goals that they have met. i don't know if you have seen, we put report language together. as he made sure the bonuses would be rewarded to those who show improved employee performance? >> they are performance award. what% of compensation. the performance judges -- judgments are made by managers and not by the employees themselves obviously in the history is those awards have gone to two-thirds of the

employees. the average size of those awards is about $1200 so nobody is making a lot of money. if i could if i could respond to the 1%, in terms of how did i come to this decision, after the decision was made last year trying to reach sequester levels that performance awards would not be paid to irs employees. omb issued a government wide edict that 1% performance awards could be made. my predecessor decided while the contract provided performance awards in a pool of 1.75% that be had, we thought negotiating ability to change that number and the number 120. they filed the grievance of unfair labor practice and a lawsuit was pending. in the course of negotiating agreement which we are in the process of an hopefully in the

near future we will have that agreement settled we have been negotiating what the performance pool ought to be going forward. >> when you say that performance pool what does that mean? the number of people that are eligible? .. or if there is

going to be a pool. the decision was no pool. ewe we worked out an agreement to drop the grievance and unfair treatment and the lawsuit. in terms of how we are able to do this, we had in the budget, before the sequester funding because as a result of the sequester we lost 1300 people and that provides us part of the revenue we need. we made more cuts about 4% in overhead. the plan is to pay the managers 2-3 months after the fiscal year. so this year we are only paying one pool award. >> can i reclaiming my time --

>> i was going to give you back two minutes. >> what i am interested in understanding is, i think if someone is eligible for an award because they show it, i am fine with that. but you said the managers make the decision, so i assume you have issued guidance whereby they can use some criteria to make this. >> there is an agency-wide performance plan. >> and they follow up that people have met these standards? people are meeting these standards that are subjects of investigation. so i want to make sure moving forward, these aawardds are

plopped. appropriate. >> when we pay a performance award, we need to be assure they are performing. we have a sophisticated system. your point is well taken. we need to evaluate so we are comfortable that everybody isn't above average and we are rewarding progress. we can do it within the budge. and these are employees who have not had a pay recogniaise in fo years. and 75% of our budget is people. without the people, the work isn't getting done. part of the reason i am out wondering in the country in the winter time is to remind the

employees that are dedicated to remind them we value their work. and some have been around for 25-30 years and their concern is getting the resources to provide better services. so settling and save us the risk of paying more and timing it in a different way, i can send a sick signal to the employees that we value their work. >> with that, i yield back. >> anybody have any other questions? we are ready to move into panel two. thank you, commissioner. i know how busy you are. we know what a difficult job you have. i think sometimes we lose sight of the good things the irs does. collecting the revenue, talking to folks, answering questions, chasing down the bad guys and

all of the things you do, we aprecate. we will have the second panel coming along >> thank you, mr. chairman. >> coming up, an event recognizing the brady handgun prevention act. and then changes to the federal criminal code. then a discussion about the people in the united states who are under the age of 35 and not registered citizens. &% today the brady campaign recognized the 20th anniversary of the so-called brady law that required background checks for guns. th